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A Test of Confidence Enhanced Performance: Evidence from US College Debaters

Author

Listed:
  • Jonathan Meer

    (Stanford University)

  • Edward Van Wesep

    (Stanford University)

Abstract

We test the theory put forth by Compte and Postlewaite (2004) that overconfidence might persist because it is welfare improving. They argue that because confidence enhances performance, some overconfidence is optimal in spite of its negative effect on decision-making. One implication of their model is that while an agent’s bias (first moment of prediction error) may not change as she gains experience in an activity, her predictive accuracy (second moment of prediction error) should improve. We test this implication by comparing predictions of success by university debaters with outcomes in debate rounds and evaluating how the first and second moments of their prediction errors change with experience. As predicted by the theory, we find that while debaters remain overconfident in spite of experience, they become more accurate in their predictions. These findings support the view that overconfidence may persist because it is welfare improving.

Suggested Citation

  • Jonathan Meer & Edward Van Wesep, 2007. "A Test of Confidence Enhanced Performance: Evidence from US College Debaters," Discussion Papers 06-042, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:06-042
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    File URL: http://www-siepr.stanford.edu/repec/sip/06-042.pdf
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    References listed on IDEAS

    as
    1. Ulrike Malmendier & Geoffrey Tate, 2005. "CEO Overconfidence and Corporate Investment," Journal of Finance, American Finance Association, vol. 60(6), pages 2661-2700, December.
    2. Cade Massey & Richard Thaler, 2005. "Overconfidence vs. Market Efficiency in the National Football League," NBER Working Papers 11270, National Bureau of Economic Research, Inc.
    3. Olivier Compte & Andrew Postlewaite, 2004. "Confidence-Enhanced Performance," American Economic Review, American Economic Association, pages 1536-1557.
    4. Muriel Niederle & Lise Vesterlund, 2007. "Do Women Shy Away From Competition? Do Men Compete Too Much?," The Quarterly Journal of Economics, Oxford University Press, pages 1067-1101.
    5. Malmendier, Ulrike & Tate, Geoffrey, 2008. "Who makes acquisitions? CEO overconfidence and the market's reaction," Journal of Financial Economics, Elsevier, vol. 89(1), pages 20-43, July.
    6. Luís Santos-Pinto & Joel Sobel, 2005. "A Model of Positive Self-Image in Subjective Assessments," American Economic Review, American Economic Association, vol. 95(5), pages 1386-1402, December.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. B. Douglas Bernheim & Jonathan Meer, 2007. "How Much do Real Estate Brokers Add? A Case Study," Discussion Papers 06-041, Stanford Institute for Economic Policy Research.

    More about this item

    Keywords

    overconfidence;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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